European stocks were mixed on Tuesday, while U.S. stock index futures edged lower as investors continued to weigh developments in Iran's geopolitical situation and the criminal investigation launched against Federal Reserve Chair Jerome Powell. Traders are set to face a "double test" today, with both bank earnings reports and inflation data on the docket.
As of writing, Dow Jones futures fell 0.14%, S&P 500 index futures declined 0.15%, and Nasdaq futures dropped 0.27%.
The pan-European Stoxx 600 index was largely flat, with major regional markets showing mixed performance. Declines in construction companies offset gains in banking stocks.
U.S. stock futures retreated slightly on Tuesday, underperforming global equities, as investor anxiety stemming from the investigation into Fed Chair Powell appeared to ease somewhat. With earnings season entering a密集 disclosure phase, investors are awaiting the release of U.S. December inflation data to gauge the market's next direction.
Market screens showed S&P 500 futures down 0.15%, with investors focused on the upcoming earnings from JPMorgan Chase (JPM). JPMorgan Chase is set to kick off the earnings season for major banks this morning; simultaneously, the U.S. December Consumer Price Index (CPI) is scheduled for release at 9:30 PM Beijing Time.
Asian equities showed significant strength, with a gauge of Asian stocks rising nearly 1%. Japan's Nikkei 225 index surged amid market speculation that Prime Minister Takaichi Sanae might announce an early election. Concurrently, the yen fell to its lowest level of 2024, and a sell-off in Japanese government bonds pushed global yields higher.
The Dollar Strengthens
Some Republican lawmakers voiced opposition to the news of the Department of Justice's (DOJ) criminal investigation into Fed Chair Powell, contributing to a slight rebound in the dollar and a pullback in gold. Meanwhile, former President Trump's threat to impose additional tariffs on countries trading with Iran pushed oil prices higher.
In foreign exchange, the U.S. dollar stabilized after recording its largest single-day drop since the Christmas holiday in the previous session. The greenback strengthened following objections from some Republican senators to the Trump administration's related actions.
Senator Thom Tillis stated he would block all Federal Reserve nominees due to the related investigation. Analysts at Deutsche Bank noted: "This is critical because the Senate Banking Committee has a 13-11 Republican-to-Democrat seat ratio; if others vote along party lines, Tillis's opposition would result in a tied vote." They added that Powell's term ends in May, so even without this event, markets had already anticipated a change in Fed leadership soon.
The yen was the weakest performer among major currencies, falling to a fresh low for 2024. The euro was largely steady against the dollar, edging lower after gains in the previous session. Francesco Pesole of ING said: "Unless the 'Fed independence trade' returns, the euro may have missed its chance to break above 1.1700 yesterday." The euro traded around $1.1662, nearly unchanged.
Bitcoin edged higher. LSEG data showed Bitcoin rose 0.9% to $91,830. However, it remained within a relatively narrow range due to a lack of clear bullish catalysts.
In bond markets, a sell-off in Japanese Government Bonds (JGBs) pushed global yields higher. The yield on the U.S. 10-year Treasury note rose 2 basis points to 4.19%, while the two-year Treasury yield increased 0.4 basis points to 3.550%.
Eurozone government bond yields rose ahead of a sizable supply scheduled for Tuesday. The Netherlands, Austria, Italy, and Germany are set to hold bond auctions on Tuesday; Greece plans to issue a new 10-year bond via a syndicate. The yield on the 10-year German Bund rose 1.8 basis points to 2.817% (LSEG data). UK gilt yields also moved higher, reversing Monday's decline; the 10-year gilt yield had fallen to 4.372% on Monday, its lowest level since April. The 10-year gilt yield rose approximately 2 basis points to 4.396% on Tuesday.
Two Key Variables to Watch
Market participants believe that with a密集 schedule of risk events this week, the stock market rally faces two key variables: firstly, U.S. inflation data, and secondly, a potential ruling by the U.S. Supreme Court on Trump's tariff policies. Momentum in global stock markets also indicates that capital is accelerating its diversification into markets outside the U.S.; domestically, recent renewed attacks on the Federal Reserve by the Trump administration have sparked concerns about central bank independence.
Regarding inflation expectations, the market widely anticipates that the year-on-year growth rate of the U.S. core CPI, which excludes volatile food and energy prices, will rise to 2.7% in December. Against this backdrop, whether the inflation data and guidance reinforce the "soft landing" narrative will be a core anchor for short-term risk appetite.
"While this is the last CPI report before the late-January FOMC meeting, it is unlikely to alter the Fed's policy stance," wrote Neal Keane of ADSS in a report. Money markets have almost fully priced in no change in interest rates this month.
Roland Kaloyan, European Equity Strategist at Société Générale, stated: "Inflation data always carries the potential to significantly exceed or fall short of consensus expectations. As for the U.S. earnings season, market expectations are high, but corporate performance has been acceptable so far. What investors truly hope for is greater certainty from management's earnings guidance for 2026."
Trump's Tariffs on Iran
In commodities, Brent crude oil rose above $64 per barrel. This followed former President Trump's statement that he would impose a 25% tariff on any country doing business with Iran. Trump is expected to meet with advisors today to discuss responses to protests in Iran and stated that military options are being considered.
Soojin Kim of MUFG said: "Expectations of potential reduced supply from Iran have tempered the bearish sentiment previously driven by forecasts of a global supply glut; simultaneously, the market remains concerned that these tariff measures could pressure relations between the U.S. and major crude buyers (like China) – which receives the bulk of Iran's crude exports." She added that the market is also weighing developments related to Venezuela.
Gold prices retreated in early trading, currently falling below the $4,600 mark as traders took profits after the precious metal hit a record high in the previous session.
Analysts at Saxo Bank noted: "The dollar rebounded from the sell-off previously triggered by market concerns over the Trump administration's impact on Fed independence." However, gold continues to find support from broader economic and geopolitical risks; Trump's decision to impose a 25% tariff on nations trading with Iran has further enhanced gold's safe-haven appeal.
Focus Stocks
Lithium mining stocks showed strength in pre-market trading, with Albemarle rising over 2% and Lithium Argentina AG gaining over 3%.
Delta Air Lines fell over 4% pre-market, as the company forecast 2026 adjusted earnings per share between $6.50 and $7.50, compared to a market estimate of $7.20.
Intel rose over 3% pre-market, while AMD gained about 2%. KeyBanc Capital Markets upgraded both Intel and AMD from "Sector Weight" to "Overweight," noting that the two chipmakers have essentially sold out their server CPU supply for 2026.
L3Harris surged 13% pre-market after receiving a proposed $1 billion investment from the U.S. Department of Defense.
Revvity advanced nearly 6% pre-market, as its Q4 revenue exceeded expectations and full-year profit is projected to surpass the upper end of its guidance.
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